Added Worker Effect Research Articles

Is There Still an Added-Worker Effect?

Using matched March Current Population Surveys, we examine labor market transitions of husbands and wives. We find that the added-worker effect - the greater propensity of nonparticipating wives to enter the labor force when their husbands exit employment - is still important among a subset of couples, but that the overall value of marriage as a risk-sharing arrangement has diminished because of the greater positive co-movement of employment within couples. While positive assortative matching on education did increase over time, this shift in the composition of couple types alone cannot account for the increased positive correlation.

Consumption Commitments and Risk Preferences

Many households devote a large fraction of their budgets to “consumption commitments”—goods that involve transaction costs and are infrequently adjusted. This paper characterizes risk preferences in an expected utility model with commitments. We show that commitments affect risk preferences in two ways: (1) they amplify risk aversion with respect to moderate-stake shocks, and (2) they create a motive to take large-payoff gambles. The model thus helps resolve two basic puzzles in expected utility theory: the discrepancy between moderate-stake and large-stake risk aversion and lottery playing by insurance buyers. We discuss applications of the model such as the optimal design of social insurance and tax policies, added worker effects in labor supply, and portfolio choice. Using event studies of unemployment shocks, we document evidence consistent with the consumption adjustment patterns implied by the model.

Job loss and family adjustments in work and schooling during the Mexican peso crisis

We use individual data from a panel of families during the depth of the peso crisis in Mexico to investigate whether the transition of the male household head from employment into unemployment affects the labor force participation of his spouse and children. We find that significant added-worker effects are in operation especially for adult females (wives), but no evidence that the labor force participation, the school attendance, and the likelihood of advancing to the next school grade of teenage males are influenced by the event of unemployment of the household head. The head's unemployment is significantly associated with a higher probability that teenage females do not attend school. However, lower attendance does not appear to impede their advancement to the next grade.

The Entry of the Wife into the Labor Force in Response to the Husband’s Unemployment: A Study of the Added Worker Effect in Brazilian Metropolitan Areas

The temporary participation in the labor force of wives whose husbands have become unemployed has been referred to in the literature as the “added worker effect” (AWE). Previous research conducted using data from the United States has found only a small AWE, a result that accords with life cycle models with perfect capital markets. The current article uses panel data obtained using a short recall period to evaluate the AWE in the six major Brazilian metropolitan areas. Our results show a positive AWE that is much more substantial than those found for the U.S. economy. The finding of an important AWE for Brazil suggests that liquidity constraints may prevent Brazilian households from sufficiently smoothing income and consumption in periods when the male head of the family is unemployed. Alternatively, the significant AWE may indicate that the husband’s unemployment signals household members that there may be a substantial reduction in future income flow.

Changes in Working Hours for Couples, 1986 to 2001

In New Zealand, the weekly hours worked by individuals have generally not been considered in the context of hours of work of other adults who may live in the same household. Using census data between 1986 and 200 I, this study focuses on total hours of work for couples. The research shows that, for individual workers, while average hours of work have not changed much there has been growth in both short and long weekly hours of paid work. The increase in working hours shows up more strongly in couple data than in individual data. This reflects both an added worker effect and changes in hours worked by individuals living in couples. The data also show that individuals and couples who work the longest hours also tend to have the highest incomes. Finally, international comparative data indicates that New Zealand stands out in terms of the proportion of individuals and couples working long hours.

The added worker effect over the business cycle: evidence from urban Mexico

This paper investigates whether the added worker effect is an important determinant of the increased labour force participation by women and whether the magnitude of the added worker effect differs between the peak and trough of the business cycle. Use is made of repeated observations from spouses in urban Mexico, collected during the Peso crisis (1994:4–1995:4) and during the period of economic prosperity (1998:4–1999:4). Significant added worker effects are found in both periods. The magnitude of the added worker effect during the crisis period is found to be twice as large as that observed during the period of economic prosperity.

The Participation of Couples in the Labor Market: An Econometric Analysis

This paper examines the interactions between household members' utilities when deciding whether or not to join the labor market. Using asymptotic least squares, we analyze a sample of 5425 couples living in France in 1997. By comparing the results obtained with more standard methods, we find that the man's participation equation is the most affected by the introduction of simultaneous decision making in the couple. The woman's decision to participate has a positive and significant influence on their spouse's decision to work, as do the number of children and the birth of a new child. The fact that the presence of children increases the participation of men and reduces the participation of women suggests that the added-worker effect should be interpreted more as a demographic phenomenon than as a consequence of unemployment.

Are Married Women in Turkey More Likely to Become Added or Discouraged Workers?

Abstract. The purpose of this study is to examine the labour market outcomes of married couples to find out which of the added and discouraged worker effects is dominant in urban Turkish families. Using household labour force survey and province‐level data from 1988 and 1994, we look for evidence regarding the dependency of the labour force participation decisions of wives and the employment status of their husbands. On yearly and pooled samples of married couples in their prime ages, bivariate probit estimates indicate that the two decisions are negatively correlated. However, the correlation is found to be statistically significant only in the economic crisis year of 1994. We interpret this finding to mean that the added worker effect dominates the discouraged worker effect.

Participation of married women in the European labor markets and the “added worker effect”

We estimate a labor participation model for married women for 11 European countries, using data from the European Community Household Panel (EHCP) corresponding to the years 1994, 1995, and 1996. As the cyclical evolution of labor market participation, unemployment, and even occupation rates may depend on the wife’s reaction to changes in the husbands’ labor situation, we consider that the “added worker effect” has an important role to play in labor market behavior. Our main objective is to test whether the “added worker effect” holds. We find, however, that the labor market participation of married females basically depends on their personal and family characteristics, their non-labor incomes, and their wages, and only in a few countries does the participation of married women seem to be related to the labor status of the husband. We can conclude, therefore, that the “added worker effect” is unusual at the present in Europe, which is a good indicator of the improvement in women’s status in the European labor market, and may be a factor in smoothing the cyclical changes in unemployment.

Health Shocks and Couples' Labor Supply Decisions

Unexpected health events such as a heart attack or new cancer diagnosis are very common for workers in their 50s and 60s. These health shocks can result in a significant loss in family income if the worker reduces labor supply, but the family can also protect itself against this loss if the worker's spouse increases labor supply, generating an worker effect. In this paper, I examine the effect of health shocks on the labor supply of both spouses using the Health and Retirement Study (HRS). I find that shocks lead the affected worker to reduce labor supply dramatically, particularly if the shock is accompanied by a loss of functioning. I also find that the added worker effect is small for men and that there is no such effect for women. There is some evidence to suggest that families respond to health shocks in predictable ways depending on characteristics such as access to retiree health insurance. The study concludes that health shocks result in real financial losses for families and are an important source of financial risk for older households.

WOMEN'S WORK AND MEN'S UNEMPLOYMENT

A large literature examines men's unemployment and their wives' labor-market participation. In response to her husband's unemployment, a woman may adjust her labor supplied to household production as well as to the market. This article tests for this effect and measures its impact using the U.S. Bureau of Labor Statistics Cost of Living survey of 1917–1919. Households altered both household-production decisions and the wife's labor supplied to the market in response to the husband's unemployment. But the household-production-response effect was smaller than the added-worker effect, in terms of women's labor hours and household consumption.

Unemployment and Wage Rigidity when Labor Supply is a Household Decision

If people's labor-supply decisions are taken at the level of the household, it is natural to expect aggregate demand and unemployment to influence the supply curve of labor. An increase in unemployment could prompt households to send more workers out in search of work to insure against the risk of the primary worker getting unemployed (the added worker effect). But it could also discourage people from wasting energy searching for work (the effect). While these effects have been studied empirically, their theoretical bases remain largely unexplored. The present paper formally models household labor supply decisions and establishes sufficient conditions for the domination of one effect over the other. A number of surprising results are established, such as the possibility of multiple equilibria in the labor market and how the announcement of a minimum wage policy can result in an overall lowering of wages and also give rise to an equilibrium which displays, simultaneously, excess demand and excess supply of labor. The model shows how the empirical literature may have a bias in overestimating the strength of the discouragement effect. It also provides a framework for analyzing the effects of minimum wage policy and the provision of unemployment benefits. It is argued that certain kinds of unemployment benefits can be justified on grounds of efficiency.

Worker Displacement and the Added Worker Effect

This article examines the “added worker effect,” which is the labor supply response of wives to their husbands' job losses. Unlike past studies, which focused on the husbands' current unemployment status, this article analyzes wives' responses before and after job losses to examine the life‐cycle labor supply adjustments. Using Panel Study of Income Dynamics data reveals small predisplacement effects and large, persistent postdisplacement effects. The timing of the responses differs with type of displacement, possibly because of differences in the information acquired before job loss. Long‐run labor supply increases compensate for over 25% of the husbands' lost income.

The added worker effect in the Spanish case

This study estimates several equations of labour participation for married women to check if the ‘added worker hypothesis’ is fulfilled in the Spanish case. To test this hypothesis a subsample of married women are used, obtained from the Survey of Structure, Conscience and Biography of Class of the year 1991 (SCBC-91). The main outcome is that women's labour participation in Spain is still conditioned by their husbands' labour status. Specifically, women's labour participation is stimulated when their husbands are unemployed.

REEXAMINING THE ADDED WORKER EFFECT

Panel data with a short recall period are used to examine the effect of a husband's loss of employment on his wife's entry into the labor force. A significant contemporaneous added worker effect is found, although as much as 75% of the added worker effect suggested by descriptive statistics is seen to reflect sample heterogeneity.

Further evidence of the added-worker effect among white couples

A logit technique is used to estimate couples' joint probabilities of various labor force statuses, given their personal characteristics. Conditional probabilities of the labor force status of wives are inferred. Women whose husbands face employment constraints are compared with counterparts whose husbands face no employment constraints. The results tend to confirm an added-worker effect, especially among women whose husbands are unemployed.

Work Relief and the Labor Force Participation of Married Women in 1940

Economic analysis of the labor supply of married women has long emphasized the impact of the unemployment of husbands—the added worker effect. This article re-examines the magnitude of the added worker effect in the waning years of the Great Depression. Previous studies of the labor supply of married women during this period failed to take account of various institutional features of New Deal work relief programs, which reduced the size of the added worker effect.

The added worker effect: A causality test

This paper uses the Gross Change data and cointegration, error-correction modeling to test the hypothesis of added worker effect in the U.S. labor market. It is shown that prime-age males' unemployment ( U m ) and flows from unemployment to out of the labor force ( UN m ) cause an increase in prime-age and young females' flows from not in the labor force (‘keeping house’) to employment and decrease their flows into unemployment.

Unobserved Variables and the Elusive Added Worker Effect

Consistent with recent empirical work, this study finds no evidence of the worker effect among married couples in the U.S. It is hypothesized that unobserved variables may be obscuring this added worker behavior. This hypothesis is rejected. The labor supply behavior of married women is influenced by the permanent, and not the transitory, nature of their spouses' unemployment. Wives with frequently unemployed husbands have lower reservation wages. Yet, apart from their measured human capital, these same women face persistently lower wage rates and higher unemployment propensities in the labor market. As a result, married women with unemployed spouses are no more likely to be in the labor force, and are actually less likely to be employed than observationally equivalent married women with employed spouses. Copyright 1991 by The London School of Economics and Political Science.

Employment Constraints and the Labor Supply of Married Women: A Reexamination of the Added Worker Effect

Little evidence is found to support the conventional notion of the added worker effect. The husband's unemployment has no measurable impact on the wife's actual hours of work. However, the constraint on his ability to supply hours of work to the labor market, and not simply his unemployment, influences his wife's labor supply. Furthermore, the observed hours of work of the wife may not accurately reflect her desired hours of work. With these considerations the wife's labor supply is found to be positively associated with the unemployment and underemployment of her husband, and this added worker effect is estimated to be quite substantial.